Holiday let investments have emerged as a popular alternative to traditional buy-to-let properties, offering attractive returns and a chance to capitalize on the UK’s booming tourism industry. However, investing in holiday lets requires a unique set of considerations, from location selection to navigating tax regulations. Property investment is impacted by a shifting market and this is changing both buyer and tenant preferences. Understanding the different types of rental properties — such as holiday lets and HMO properties can assist in a successful investment strategy. This article explores the key aspects of holiday let investments and why landlords might choose this type of property.
Why Invest in Holiday Lets?
The UK’s domestic tourism market has experienced significant growth in recent years, driven by a combination of travel restrictions during the pandemic and the growing preference for local getaways. According to VisitBritain, there was £32.5 billion domestic tourist spend in 2024, marking a great increase from pre-pandemic levels. Holiday lets in scenic regions such as Cornwall, the Lake District, and the Cotswolds have the potential to largely benefit from this trend.
Holiday lets often generate higher rental income than standard buy-to-let properties, particularly during peak tourist seasons. According to Uswitch occupancy rates for UK holiday lets were up by 98% in January 2024 compared to 2019, with top-performing areas like Cotswolds reaching over 60% occupancy rate all year round. Gross rental yields for holiday lets can range from 8% to 10%, compared to 5% to 8% for traditional rentals.
Previously, holiday lets classified as Furnished Holiday Lets (FHLs) benefited from unique tax advantages, many investors choose holiday lets as their buy-to-let property type because of this. These benefits are no longer applicable after 2025 — therefore, when investing in a holiday let to still access certain tax efficiencies, investors may consider using a limited company structure.
The success of a holiday let investment largely depends on its location. There are certain locations which investors often look to due to their popularity as tourist and staycation spots. Other locations could start to become more popular with holiday let investors due to the changing property market in the UK and the lower entry costs they offer. Let's take a look at some of the options:
Cornwall remains a perennial favourite among holidaymakers, attracting over 4 million visitors annually. The average property price in Cornwall is £303,000, with rents growing by over 8% year-on-year due to the popularity of this location for holiday visits. Coastal towns like St Ives and Padstow are particularly lucrative, offering both high demand and capital appreciation potential.
The Lake District, a UNESCO World Heritage Site, welcomes around 18 million visitors a year. Properties in this region have high demand with occupancy rates at 63% annually, this includes non-peak periods. Average property prices are around £306,748, there are times when the annual return on investment in this region sat at over 8%.
Known for its picturesque villages and historic charm, the Cotswolds is another popular location for holiday let investments. Properties in the region have higher entry prices, averaging £504,000, but they also attract affluent holidaymakers willing to pay premium rates. The average revenue for these properties sits at around £33,000 due to the high occupancy rate during peak periods and the premium that visitors are willing to pay for the location.
Although these are some of the more popular holiday let regions, regional cities — such as Manchester and Liverpool — with lower average property prices could be a potential choice for investors looking at holiday rentals. These locations cater well to city breaks and continue to see growing occupancy due to staycations and increased tourism as regeneration occurs.
While holiday lets can generate impressive income during peak seasons, off-peak periods can lead to reduced occupancy rates. To mitigate this risk, investors should consider choosing locations with year-round appeal, such as cities with strong cultural or business tourism markets.
Managing a holiday let can be more demanding than a traditional rental property. Investors must handle frequent tenant turnovers, cleaning, and maintenance to ensure high guest satisfaction. Many owners choose to hire property management companies, which typically charge 15-25% of rental income.
The holiday let market is increasingly subject to regulatory change. In 2024, Scotland introduced licensing requirements for short-term lets to regulate the market, and similar measures are being considered in England and Wales. This has been seen with the removal of the FHL tax advantages that used to be available to investors. These regulations aim to address housing shortages in popular tourist areas and create fairness within the markets but investors should be aware of these changes as they may limit the flexibility of holiday let investments.
Investors should tailor their holiday let offerings to meet the preferences of their target audience. For example, families often prioritise properties with multiple bedrooms and outdoor spaces, while couples may seek luxury features like hot tubs and scenic views. This needs to be considered based on the visitors that your chosen location attracts as well as your chosen property type. Families looking for a scenic holiday may prefer a detached house in a seaside town, while younger tourists could be looking for a city centre location with accessible transport links.
Platforms like Airbnb have revolutionised the holiday let market, making it easier for investors to reach potential guests and understand the market better. Using these tools, investors have the opportunity to explore the demand and supply in certain regions to determine their investment strategy. They might also use different tools to explore seasonality and determine competitive pricing based on the time of year.
Keeping up to date with local council policies and licensing requirements is essential to ensure compliance. Investors should also monitor potential changes to tax laws that could impact their returns.
Holiday let investments in the UK offer the potential for high rental yields and capital appreciation, particularly in sought-after tourist destinations. However, they also come with unique challenges, including seasonality, higher management demands, and evolving regulations.
By carefully selecting the right location, understanding their target market, and staying informed about industry trends, investors can successfully navigate the holiday let market and access high returns. As with any investment, thorough research and professional advice are key to achieving long-term success with this dynamic investment type.
This is for your information only and should not be relied upon or construed as legal, tax, investment, financial or other advice. Whilst GetGround has tried to make sure this information is accurate and up to date, things can change, so GetGround cannot guarantee or be responsible for the accuracy, relevance and/or the completeness of the information provided. Certain information has been obtained from third-party sources and GetGround is not responsible for the accuracy of such content. Any prediction, forecast or projection is provided solely as an example of possible growth and return and will not necessarily reflect the actual growth and return. GetGround cannot promise that the information provided will be fit or suitable for any purpose. Any reliance that you may place on the information provided is entirely at your own risk. GetGround always recommends you obtain independent advice before making any investment decisions.